Transformation Planning to Execution.
How the first year of PE ownership moves the agenda
The planning process for value creation from the point of deal close to first board meeting results are important. Value creation comes from the thinking through and creation of “the plan-the binder” to how planning meets execution. Assessments documented by internal or external resources focus on the people-process and technology and through the deconstruction approach a plan emerges.
While people-process and technology assess the current assets, the approach does not fully appreciate the value creation plan and monitoring. PPT needs to merge with strategy-structure and measurement to bring together all relevant areas of a successful transformation from planning though execution.
- Some value creation thesis is grounded in aggressive add-ons of supply chain partners. That approach could also include smaller niche competitors or a vision of taking adjacent core suppliers, niche competitors and acquisitive strategies that build scale. Such a strategy requires an infrastructure for ease of integration to build scale. Strategy hence drives the transformation and value creation plan.
- Strategy puts demand on leadership for scaled models. Scaled technology puts foundations to execute add-ons, and to build data lakes into business intelligence, tools and approaches to add sales teams to drive top line, etc. Human capital leadership needs deal and operational alignment to assess the readiness and capabilities to manage the plan in front of all stakeholders.
- Strategy at time of acquisition must point to what exit will look like. Market forces, company health, leadership strength, board governance and understanding the value creation dynamics (and the probability of success) must all be managed during the transition.
- Transition can be viewed from LOI to 100-day, 1 year and 3 years for a line of sight into the possibilities execute specific value creating options.
- An organization going through transformation must determine the structure of how direction is set and how governance is developed and maintained.
- Who will own the data and reporting of the goals to be achieved? Is the office of the CFO the place where the “data is verified and good” resides or is it the Chief Technology Officer if it is a technology company? If top line growth is as important to thesis achievement as other maneuvers is the Chief Revenue Officer the person.
- Are the right people in the right roles with resources? Understanding current reporting structure and transformation elements of ownership as much as value creation will come down to human capital deployment. The right structure aligns with growth planning. This process needs the strength and discipline of the deal team aligning with the value creation team as early as possible in the IOI to LOI process.
- Measurement creates accountability and a language for all stakeholders to understand each other and measure results.
- LPs crave accountability and more metrics. Having a baseline and a plan goes a long way to why 10X for the platform creates value and how blending rates down can work through the add-on strategy process.
- Measurement defines where changes need to be made and the technology and people to execute.
Middle market acquisitions at the current stage of the cycle may not be distressed but underinvested and undermanaged stand-alone and carveouts require thoughtful thesis development. The early ownership should be marked by clear decision making. The number of possible private capital participants in a process can vary. The experience in deal execution clearly favors the private equity investor. The same consultants, advisors, operators and historic advantages can now be leveraged by all participants. That ranges from independent sponsors to family offices to direct investment structured LPs.
The value creation measurement is the main output. A transformation plan with all disciplines executed from the program management led by internal subject-matter-experts or third-party advisors. Early alignment at deal creation provides the debate and movement of innovative ideas to strong deal close thesis leading to the structured measurement of results.
MOIC in an over equitized environment may be the measure the GPs provide to LPs in this market stage. CXOs will need to prove leadership and further the confidence to move thesis and 100 days-1-year plan to a data-driven organization.
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